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    DOCN
    Earnings call· Mar 2026(Q1 FY26)

    DigitalOcean Holdings Q1 FY26 earnings call DOCN

    May 5, 2026 Source

    Executive summary

    DigitalOcean Q1 FY26 — Accelerating Growth Driven by AI Native Cloud and Capacity Expansion

    DigitalOcean delivered strong Q1 FY26 results, driven by accelerating growth from AI-native and large cloud customers, and a significant product launch with the AI native cloud. The company raised substantial equity to expand data center capacity, strengthening its balance sheet and enabling increased revenue guidance for both 2026 and 2027, focusing on durable and profitable growth in the inferencing and Agentic markets.

    Highlights

    5

    • Q1 revenue was $258 million, up 22% year-over-year, exceeding guidance.

    • AI customer ARR reached $170 million, growing 221% year-over-year.

    • ARR from $1 million+ customers reached $183 million, growing 179% year-over-year.

    • Raised full-year 2026 revenue growth projection to 25%-27% and 2027 revenue growth to 50% or more.

    • Secured 60 megawatts of incremental data center capacity, bringing total committed capacity to 135 megawatts.

    Concerns

    2

    • Projected adjusted free cash flow margin for FY26 is 9%-12%, including a ~$100 million cash flow impact from nonrecurring start-up costs for new capacity.

    • CapEx per megawatt for new capacity is expected to be higher due to rising component costs and higher token capacity equipment.

    Guidance & targets

    10
    CategoryTargetConfidence
    Q2 FY26 Revenue
    $272 million to $274 million
    medium materiality
    High
    Q2 FY26 Adjusted EBITDA Margin
    37% to 38%
    medium materiality
    High
    Q2 FY26 Non-GAAP Diluted Net Income Per Share
    $0.20 to $0.23
    medium materiality
    High
    Full Year 2026 Revenue
    $1.13 billion to $1.145 billion
    high materiality
    High
    Full Year 2026 Adjusted EBITDA Margin
    37% to 39%
    medium materiality
    High
    Full Year 2026 Adjusted Free Cash Flow Margin
    9% to 12%
    medium materiality
    High
    Full Year 2026 Non-GAAP Diluted Net Income Per Share
    $1.10 to $1.20
    medium materiality
    High
    Full Year 2027 Revenue Growth
    50% or more
    high materiality
    High
    Full Year 2027 Adjusted EBITDA Margin
    Approximately 40%
    medium materiality
    High
    Full Year 2027 Adjusted Free Cash Flow Margin
    High teens
    medium materiality
    High

    Operational metrics

    17
    Revenue Growth
    22%year-over-year
    Q1 FY26

    Q1 revenue was $258 million.

    Incremental Organic ARR
    $62 millionrecord high
    Q1 FY26

    Highest in the company's history.

    Adjusted EBITDA Margin
    41%
    Q1 FY26

    Q1 adjusted EBITDA was $105 million, up 21% year-over-year.

    Free Cash Flow Margin
    18%
    TTM

    Trailing 12-month adjusted free cash flow was $171 million.

    Adjusted Operating Income
    $64 million
    Q1 FY26

    With an adjusted operating income margin of 25%.

    Adjusted Operating Income Margin
    25%
    Q1 FY26

    Adjusted operating income was $64 million.

    Financed Equipment Principal Payments
    $17 million
    last 12 months

    Included in trailing 12-month adjusted free cash flow less lease principal payments.

    Equity Proceeds Raised
    $888 million
    Q1 FY26

    Used to strengthen balance sheet and expand capacity.

    Term Loan A Repayment
    $500 million
    Q1 FY26

    Repaid full Term Loan A, saving roughly $50 million per year in cash interest and mandatory prepayments.

    2026 Convertible Notes Retirement
    $312 million
    future

    Intend to use a portion of remaining cash to retire outstanding 2026 convertible notes when they mature.

    Net Leverage
    approximately 3x
    exit 2026

    Expected net leverage with no material debt maturities until 2030.

    Richmond Data Center Revenue Contribution
    less than $500,000
    Q1 FY26

    Contributed less than 20 basis points of year-over-year growth in Q1.

    Richmond Data Center Growth Contribution
    less than 20 bpsyear-over-year
    Q1 FY26

    Contributed less than $500,000 of revenue in Q1.

    GAAP Operating Income Margin
    14%
    Q1 FY26

    GAAP operating income was $37 million.

    Inference and Core Cloud Pull-Through of AI Customer ARR
    over 80%up from 70% in Q4
    Q1 FY26

    Indicates that AI customers are using full-stack cloud platform, not just GPU rental.

    Non-GAAP Diluted Shares Outstanding
    121 million to 122 million
    Q2 FY26

    Weighted average fully diluted shares outstanding for Q2 guidance.

    Non-GAAP Diluted Shares Outstanding
    118 million to 119 million
    FY26

    Weighted average fully diluted shares outstanding for full year guidance.

    Industry KPIs

    3
    MetricValueDetails
    Rpo current rpo$243 millionUSD
    Large customer cohorts179%%
    Genai ai book of business$170 millionUSD

    Orderbook & backlog

    1
    Remaining Performance Obligations (RPO)$243 millionQ1 FY26

    up 1,700% year-over-year

    Product announcements

    5
    ProductTypeDetails
    DigitalOcean AI Native Cloudlaunch
    New Inference Enginelaunch
    Managed MySQL and PaaS CRIs databases (Enterprise Version)launch
    Vector Database Supportlaunch
    Managed Agents Platformlaunch

    Deals & partnerships

    1
    CataneoAcquisition to accelerate open source AI stack.

    Acquisition completed last quarter, contributing to the DigitalOcean AI native cloud development, specifically the Plano data plane and inference router.

    Capital programs

    2
    Existing Committed Data Center Capacityon track

    Benefit: 31 megawatts

    Previously communicated 31 megawatts remain on track to be delivered as planned in 2026. Richmond facility began ramping revenue in March.

    Incremental Data Center Capacitysecured
    Funding: equity proceeds

    Benefit: 60 megawatts

    Secured approximately 60 megawatts across four new locations, bringing total committed capacity to 135 megawatts. This capacity is projected to begin ramping revenue over the course of 2027. Build-out likely to start in late 2026, impacting 2026 cash flow and margins. CapEx per megawatt expected to be higher than prior equipment due to rising component costs and higher token capacity equipment, but expected to generate same or higher ROI.

    Risks & headwinds

    2
    Start-up costs for new capacityFY26

    ~$100 million cash flow impact

    Mitigation: Included in adjusted free cash flow margin guidance for FY26; without these costs, FCF margin would be higher.

    Higher CapEx per megawatt for new capacity

    higher than for 31 megawatts equipment ordered last year

    Mitigation: Driven by rising component costs and higher token capacity equipment; company expects to generate same or higher return on investment and will align timing of investments with revenue by financing a material portion of equipment.

    What to watch in Q2 FY26

    5

    Q2 FY26 Revenue Growth

    next quarter
    Current22% YoY (Q1 FY26)
    Target24% to 25% YoY

    Why it matters

    Verifies continued acceleration of top-line growth and execution against raised guidance, indicating sustained customer demand.

    For the second quarter of 2026, we expect revenue of $272 million to $274 million, representing 24% to 25% year-over-year growth.

    Q&A highlights

    6

    How relevant is the CPU renaissance for DigitalOcean's business given its core cloud and CPU footprint, especially with Agentic workloads requiring a mix of CPU and GPU?

    The company anticipates a compute-heavy future with Agentic workloads requiring significant CPU, high-bandwidth memory, advanced databases, and orchestration. While the exact CPU:GPU ratio is uncertain, DigitalOcean is preparing for this by deploying its full-stack AI native cloud in new data centers, not just inferencing services.

    “we are going to need a hell a lot of more compute to do all of these things as more software gets rearchitected over the next handful of years to be more Agentic, which requires both inferencing for the thinking part and a lot of computing for the doing part.”

    asked by William Kingsley Crane · answered by Padmanabhan Srinivasan

    2 min read5 chapters

    Detailed Narrative

    01

    Accelerating Momentum and Customer Growth

    DigitalOcean reported Q1 FY26 revenue of $258 million, a 22% year-over-year increase, exceeding guidance. This growth was primarily driven by strong retention and expansion within top cloud and AI-native customer cohorts. AI customer ARR surged 221% to $170 million, while ARR from customers spending over $1 million grew 179% to $183 million. The company achieved a record $62 million in incremental organic ARR, the highest in its history, demonstrating strong customer adoption and scaling on the platform.

    02

    Launch of DigitalOcean AI Native Cloud

    The company launched its AI native cloud, a significant product offering designed for inferencing and Agentic workloads. This platform features over 15 new product launches across five integrated layers, including a global infrastructure with 20 data centers, a new inference engine, advanced data and learning layers with managed databases and vector support, and a managed agents platform. The platform emphasizes openness with open-source options at every layer, catering to AI-native companies that require flexibility and compelling unit economics.

    03

    Strategic Capacity Expansion and Capital Allocation

    DigitalOcean raised $888 million in equity proceeds during Q1 FY26, which was used to strengthen its balance sheet by repaying a $500 million Term Loan A and securing 60 megawatts of incremental data center capacity. This new capacity, across four locations, is slated to ramp revenue throughout 2027, bringing the total committed capacity to 135 megawatts. The company continues to pursue additional capacity for 2027 and 2028, aiming to meet growing customer demand in the generational AI market opportunity.

    04

    Competitive Differentiation in the AI Market

    DigitalOcean positions its AI native cloud as distinct from hyperscalers (more open, purpose-built for modern software), GPU Neoclouds (full-stack inferencing and Agentic platform vs. training-optimized), and inference wrapper providers (broader platform for complete software development). Key differentiators include its AI middleware (Plano data plane and inference router), managed agents platform, and data gravity through integrated managed databases. Independent benchmarks show DigitalOcean delivering superior output speed for leading open-source models.

    05

    Financial Discipline and Profitability

    Despite significant investments in capacity expansion, DigitalOcean maintains strong profitability. Q1 adjusted EBITDA was $105 million, representing a 41% margin. Trailing 12-month adjusted free cash flow was $171 million, or 18% of revenue. The company expects to exit 2026 at approximately 3x net leverage with no material debt maturities until 2030, demonstrating a commitment to both rapid growth and durable profitability.

    AI-generated summary of the company’s earnings call. Not investment advice.